Tariffs on PC Components
We’re looking at over a 25% increase in product import prices by next year, which will be passed on to consumers. The full list of tariffs includes power supplies, motherboards, video cards, complete system builds, bridges, SSDs, mouse pads, mice, keyboards and mice only if bundled together (but not on keyboards if sold separately), CPU coolers, cases, chairs, and more. The tariff cost is applied as goods come into port. Technically, it is the company that must pay the tariffs, but those costs will be passed along to consumers. This isn’t the manufacturers being greedy: As a reminder, some of the video cards we’ve worked with have profit margins of under 3%, with the average at around 4%. Very few cards can reach even an 8% margin. The retailers profit more than the video card makers, and all of this means that it is impossible for the manufacturers to bear the burden of a tariff increase without consumers also paying more.
The most heavily impacted companies are those which make electrical components that come from China, so that would include… all of them. Even case manufacturers are getting hit, because aluminum and steel are included in the list of affected items. Very few manufacturers in this industry make things outside of China, and it is typically Taiwan when made elsewhere. Taiwan isn’t tooled-up with enough factories to allow a mass switch-over of manufacturing, but it does have a few low-capacity motherboard factories, like Gigabyte’s, and a few case factories, like In Win’s and Lian Li’s. Even still, all of these companies make more goods in China than not, and will be affected.
A Reminder on Factories in China
There’s a long-lasting stigma that Chinese factories are where low-quality products are made. While it is certainly possible for any country to be host to poorly made products, and while that was largely true at some point, China is now a manufacturing hub for the world. We must underscore the great importance of the fact that China now hosts some of the world’s most technologically advanced factories. You may have a power supply or video card which you perceive to be very high quality, or might associate a particular brand with quality products – there is almost 100% certainty that parts within that product come from China, if not the entire product as a whole. Further, the entire supply chain is in Asia: Most capacitors come from Japan (Nichicon), MOSFETs and small silicon parts often come from Taiwan or China, and PCBs are also often from China or Taiwan. To move factories elsewhere is a tremendous expense and a risk play, particularly considering the likely impermanence of tariffs as administrations change or flip-flop. The most likely scenario is that some manufacturing will shift to Taiwan where already tooled-up, but most will remain in China as consumers eat the tariff. It is almost a certainty that no PC part manufacturing will move to the States as a result of this, as the entire supply chain is in Asia.
Price Increases Will be Greater than 25% by 2019
One off-record industry source told us that some companies will likely offset prices by greater than the 25% import overhead, as the time cost to the extra money also carries value. Companies now won’t be able to invest as much money elsewhere, like ordering more product, because they need to free-up budget to pay tariffs. This has a knock-on effect where the companies lose spending power and will charge consumers to try and make-up for it.
The need-to-know information is as follows:
- The 10% tariffs are effective October 1, 2018
- There is an additional 15% tariff mandated by the federal government on January 1, 2019
- Companies have to stockpile in local warehouses
This last point is an interesting one: Companies with larger warehouses in the US will fare better in this transition period. The more product they can import into the US before the tariffs apply, the longer they can stave-off the price increases. Inventory that makes it into the US before the new tariff hike will dodge the cost increase, and can continue selling as normally.
Just for perspective as to how wide-reaching this is, the cost increases also apply from shipping cost increases. Even outside of the tariff impact on cost of goods, because companies are trying to flood warehouses with products, shipping cost has also gone up. This applies to boats and planes alike, but is harder to swallow with planes.
Everyone is Affected by Shipping Costs
Even our own products are impacted by this. Shipping on our GN Modmats (from the factory to the States) has increased by 30% as a result of the trade war, which is for a few reasons: The primary reason is that shipping companies are currently being overloaded with manufacturers trying to get products out of port as fast as possible, which means there is less space on the planes, and so that space is more valuable. A 30% increase on our shipping rates eats margin a lot, and you can bet that also applies to computer part manufacturers. We have decided to keep our price on the product the same, but that does mean we’re profiting less as a result – and that’s on a product with an already low margin.
GN’s International Logistics Expert on Tariffs
We spoke with our international shipping & logistics expert on these increases, who provided the following comment:
"The air/ocean rates as I advised are increasing due to the providers pulling space out of both air and ocean. Airlines have reduced their flights and steamship lines have reduced their capacities/allocations out of China. Imports from China continue to be strong and increasing, however, with the next round of tariffs imports will sharply start to decrease."
EVGA CEO Andrew Han to GN on Tariffs
Andrew Han, CEO of EVGA, told GamersNexus the following:
“Thanks for reaching out and being proactive to educate the gaming community about the upcoming Tariff and how it could impact gaming components. With the previous imposing Tariff on China-made goods, so far the impact has been minimal to EVGA based on List #1 (effective 7/6) and List #2 (Effective 8/23). However, List #3 will have a significant impact to the GPU, PSU, and Motherboard categories for EVGA with the proposed 25% tariff. Since many key products are produced in China, the ultimate impact to the consumers is significant. To our knowledge, not all manufacturers (including EVGA) have sufficient capacity to produce all these products outside of China in the near term. With the upcoming holiday season, EVGA is trying its best to mitigate the impact to the gaming customers.”
NZXT to GN on Tariffs
NZXT provided GamersNexus this statement:
“Unfortunately, the latest round of proposed tariffs on imports from China will very likely impact NZXT’s products. If we cannot obtain a waiver or legally reclassify our goods, we will be forced to increase our suggested retail prices to cover whatever tariff level is finally set (currently either a 10% or 25% increase is being considered). The timing for any increase would be directly tied to when the tariffed goods clear U.S. customs and move into our retail channels. The price increases would affect all of our North American customers, including Canada.
Everyone at NZXT works very hard to deliver quality products and great service at fair prices. It would be regrettable to see our prices increased to customers in North America due to changes in our Federal Government’s trade policy. If you wish to express your opinions on these policy decisions and how they are affecting you, you can find your elected officials at www.contactingcongress.org.”
SilverStone to GN on Tariffs
SilverStone noted that all of its products have been classified as affected by the tariffs, and the US office will have to increase prices as a result. SilverStone noted the following to GamersNexus before the tariffs came into effect: “We are aware of the possible impact the tariffs will have on our products. We will raise prices if our own cost is affected and will not take advantage of the circumstances to increase our profit margin.”
Alphacool to GN on Tariffs
Alphacool stated to GamersNexus:
“It seems Alphacool isn’t affected by the tariffs as much as some of the other brands in the industry will be. Our prices on certain products will have to increase, these include but are not exclusive to our hard and soft tubing, our Eiskamm cable combs and our Alpha cord sleeving. This is due to them falling into categories that will have the increase implemented. We don’t yet know how much of an effect it will have on the pricing for the end user, we’re trying to keep them as low as possible still but when a region implements an increase, unfortunately it has a knock on effect. The US region is one that Alphacool is currently looking to be more active in and the tariffs are not ideal, we don’t think it will affect our end goal too much – you will still be able to purchase our products at a reasonable price and although the prices may go up slightly, we’re committed to making the increases to the end user as easy to swallow as possible. We look like we’re a little luckier than some of our friends in the industry and we hope that other companies are not hit so hard that it just isn’t viable for them to continue trading. It is certainly a strange time for industries.”
Gigabyte to Partners on Tariffs
Gigabyte’s statement to partners noted that notebooks, keyboards, memory, and headsets will be unaffected at this time. Given existing memory price fixing concerns, this is a silver lining around otherwise bad news. We don’t fully understand why motherboards, power supplies, and mice can be affected, but laptops are somehow unaffected.
We also spoke with several large component manufacturers off-record, all of whom shared concerns of price increases in the range of 10-25% by end of year. Of our sources, not a single expressed that they would be completely unaffected. Alphacool was the closest, and that’s because they’re not as dominant in the US as the other manufacturers – but it will hinder Alphacool’s ability to expand into the US market.
This will be bad for the industry and will hurt consumers. It will also hurt media outlets like ours, because there will be a follow-on impact of reduced advertising budget, reduced affiliate revenue because consumers will buy less, and reduced interest as products become increasingly difficult to purchase.
If you want to get involved and are a US resident, your best bet, of course, is to vote appropriately and use contactingcongress.org to find your representatives. There are votes coming up in November.
As for manufacturing, that’s not leaving China anytime soon. Despite its old reputation of low quality, China now has some of the most advanced factories on the planet, and there simply aren’t factories elsewhere that are capable of manufacturing many of the components we buy. Gigabyte can make some of its video cards and motherboards in Taiwan, but that hardly fulfills market demand. In Win and Lian Li can make cases in Taiwan, but again, they also work with Chinese factories.
Aluminum, steel, and electronics are all impacted by these tariffs. Only some pre-assembled systems will dodge the tariffs, but DIY parts are being targeted heavily. We are curious as to how this will impact the usually actually good sales come Black Friday.
Editorial: Steve Burke
Video: Andrew Coleman